CPI, Retail Sales Headline Sterling’s Outlook

The British pound was treading water Monday, as the forex market eyes an active data wire headlined by the consumer price index and retail sales.

Observers of sterling will note the currency’s relative weakness in recent weeks. The markets became jittery about the pound after Bank of England officials pondered about the UK’s struggling export market. In a speech to the North East Chamber of Commerce two weeks ago, out-going BOE Deputy Governor Charlie Bean expressed concern that any additional strength for the pound could weigh on Britain’s export-based recovery. Since then, sterling has lost more than 1.3 percent against its US rival.

The pound extended its losses last week after the US Federal Reserve hinted at a possible rate hike as early as Q2 2015.

Data on consumer price inflation and retail sales could help shore up the pound this week. The Office for National Statistics could show annual consumer price inflation ease from 1.9 percent to 1.7 percent in February, according to forecasts. While easing inflation certainly supports struggling UK households, who reported stronger than forecast earnings growth in the three months through January, this will likely place further pressure on the pound.

The ONS’ retail sales report will hit the markets Thursday. The report could show retail receipts rose 0.5 percent in February, following the sharpest decline in nearly two years.

Market participants should use this week’s data to size the pace of UK recovery, and determine whether the BOE could be compelled to shift its stance on monetary policy sooner than expected.

In the morning North American session, the GBPUSD pair was trading at 1.6478, virtually unchanged from its previous close.

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